Riverside County Grand Jury Exposes Fraud and Deceit In CFD Bonds

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The 2018/2019 Riverside County Grand Jury has released a Report titled:  “Community Facilities District Bond Funding in Riverside County Perpetual Debt Under CFD and Service Area Taxes.” CFD Bond Fraud is rampant throughout Riverside County, but nowhere are the Mello Roos State Laws more violated than in the City of Beaumont. Although the Grand Jury Report focuses on the City of Beaumont; the same illegal activity is occurring in Temecula and Lake Elsinore. The Grand Jury Report on CFD Bond Fraud is open to take responses from the Public until October 1, 2019.  Please tell your story to the Riverside Grand Jury and let us know here, or email libiure@gmail.com. Include any Elected and/or Appointed Officials’ statements and the names of any private Citizens that have aided and abet the illegal bond and construction scam in Riverside County. The 12-page Report is broken down into 12 Findings with summaries:   1.  Disclosures. “The disclosure documents reviewed contain, with few exceptions, ambiguous, complex, or misleading language. When the disclosures of CFD bonds are made, they are often hidden in fine print and are undecipherable by the average home buyers. This practice shows transparency is not the goal of most seller’s agents.” “Visits to sales offices revealed either a lack of knowledge or outright false and misleading information about CFDs being given by the sales staff to prospective   buyers.  When asked if there were CFDs on homes being sold the reply was “no, we don’t have any of those”.  When the Finance Director was asked the same question the reply was “I don’t know what those are”.   2.  A False Economic Cost “The lender often fails to calculate the long term escalation of costs related to the special tax on the home and the long term consequence to the home buyer which could ultimately result in loss of their home.” “Removing the infrastructure costs allow developers to sell homes for less.  In reality, it merely lowers the immediate cost by not incorporating the long term cost of CFD bonds for the home owner that are higher than the home financed by conventional terms.  As a result, this dependence on Mello Roos (CFD) financing shifts development costs to the home buyer instead of the developer.”   3.  Timing of Disclosure and Honesty “Some were lied to when they asked if a Mello-Roos tax was on the home.  One sales person told a potential buyer, “There are no CFD bonds on these homes.”  There were actually three CFD’s on each home. This is either ignorance or dishonesty.  The sales person was parking the truth by saying “no” because they are technically called CFD Bonds and not Mello-Roos.” “Developers and City Officials put forth the argument that it is the responsibility of the home buyer to do their due diligence and understand what they are obligating themselves to… Even knowledgable buyers complained it was written in such a legalistic way that it was undecipherable.”   4.  Escalators “CFDs have erased all of the intended protection on taxation limits of Proposition 13.  Many nomes are encumbered with multiple CFD Bonds such as:  a Facilities bond, a Services bond, and a School bond. These three bonds and the Ad Valorem tax amount to a seven percent (7%) escalation of all taxes.” “Financial distress could develop that would affect those on a fixed income especially when an economic downturn occurs.  This scenario does not take into account other taxes such as voter approved school bonds, sales tax increases, and hospital bonds.” “The bond generated tax payments may continue forever.” “Escalators are a mechanism used by cities and developers to obtain the greatest amount of revenue from the bond payers.  Escalators are not required on the bonds by law, but are allowed.”   5.  Long Term Development Contract “Another practice by tax approving agencies is guaranteeing developers, through a master agreement, hundreds of millions of dollars in pre-approved bonds.  This is accomplished without any thought of what the economy will be at the time of issuance.  The Home Buyer’s ability to pay is not part of the equation in the decision making.” “Long term master development agreements extending into double digits have no real limit guaranteeing developers the city’s support for CFD entitlements and are irresponsible.  This allows uncontrolled development for which a city may not be able to pay.” “A local City Council, when confronted by its citizens about the extreme indebtedness and uncontrolled development, defended its unchecked practice of approving bonds by stating in numerous meetings; “they could not refuse to vote on the purchase of bonds due to a long term development contract.”  When the Grand Jury requested a copy of the document, their legal representative stated that “such a document does not exist.” “This public comment presents a serious conflict of interest, deceit, and fraud upon its citizens.  It could be seen as a conspiracy to mislead the people.” “Those voting on the CFDs; and in one case those supporting a lawsuit settlement favoring the developer, have received large campaign donations from the very developers whose bond sales they continue to approve.”   6.  Uncontrolled Development “The uncontrolled development made possible by CFD bonds has Riverside County responsible for almost 25% of the total bond debt in all of California.” “If there is one land owner, a single vote can encumber tax debt on thousands of people in perpetuity.”   7.  Bond Fund Security “Strangely, the City of Beaumont says that no money was lost from bond proceeds.  This does not correspond to the Court Ordered Restitution of the seven Defendants.” “When the City’s legal representative was asked by the Grand Jury “If money is recovered, would it be put back into the bonds from which it was missed?” They answered evasively “No money was stolen out is missing from the bonds!”   8.  Need and Use Plan Required “Any city or school district, before getting approval for CFD Bonds, must present a specific plan for the need and use of the money and educate the constituency of the community.  The current public hearings provide only general information and not specifics.  This does not give the public enough information to make relevant and informed comment.  The fact that those in new developments, those who will be ultimately responsible for those tax payments, are as yet unknown and is problematic.”   9.  Diversion and Recovery of Funds “CFD financing appears to be a convenient way for local governments to pay for infrastructure and other needs.  Bonds carry many additional responsibilities which requires city and county elected officials to pay close attention.”   10.  The Debt Burden Growing with Little Limitation “This can and has created prohibitive debt burdens on tax payers. This is especially true in the current practice of placing multiple CFDs on the same property.” “A heavy debt burden can become a critical player in any economic downturn, affecting the local economy and the bond market.”   11.  CFD Zones, Specific Taxes and Benefits “Some enterprising individuals have been creative and developed CFDs which cover an entire city.  Tax payers have no guarantee that they will specifically enjoy the benefits they are paying for from bond funds.  This is the case in one city where until recently, the entire city was one CFD.  Money from bonds was used to fund growth related projects, not related to the bond payer’s area, which benefited developers and the city.”   12.  Financing within Limits “The Building Industry Association (BIA) is an organization representing the interest of developers and builders. They challenged a CFD special tax passed by the San Ramon City Council.   Goals: “Members of the public should insist their elected officials be educated about the many parameters of Bond funding and administration.”


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